When people talk LVR, do they mean equity to debt or equity + liquid assets to debt?

e.g. I could have an 50% LVR position if I compare equity to debt.

BUT if you look purely at easily accessible liquid assets (cash, LOC and stocks), my position is really like 80% LVR (just an example).

I'm curious is there a hard and fast rule - is there an agreed upon definition of LVR? Is there an analogue to net vs. gross yield?

This is what I do for my planning:

For the purposes of general portfolio assessment I simply use assets to debt.

For the purposes of risk management I use ONLY liquid assets to debt.

Does this sound about right? Perhaps I'm being too conservative but I do like to know where I stand if crap hits the fan.

 

$100,000 property with an $50,000 IO loan and a $30,000 LOC = 80% LVR

Even if they have $50k in the bank it is still an 80% LVR.
Even if the $30k LOC is undrawn it is 80% LVR

 

You're talking from a bank perspective. I'm talking from a risk mitigation one. I'm thinking there might be different ways for one to view themselves when it comes to risk and assessing where they stand. The reason is because sometimes you hear people criticize others because they have high LVR but then they say no I have a lot of cash. So LVR I've found is misleading sometimes so I was wondering if I'm the only one that has different interpretations of what LVR means depending on context.

 

In that case the person could always use the cash to pay off the loan. The LVR could be 0% if they did that and didn't use the LOC.

 

Yes but a lot of people don't have that much cash...

 

Does this mean you only count liquid value as in cash and stocks and not any equity/deposit from your ips to work out your overall LVR???

If that's the case... assuming someone has no cash or other liquid stocks and a 2mil property portfolio with 50% debt, would that still equate to you as a 100% lvr?? or am I way off...

 

same principles apply though.

 

So it's less about LVR and more about a person's debt to net worth? Ie. debt as a percentage of net worth?

 

Yes that's right, because if you lost your job you'd be screwed. Again as I said there are many ways to slice this and this is what I do.

 

No because you can count equity as part of your net worth.

What I'm saying is to calculate immediate risk (without having to sell down to access that equity), you'd only look at liquid assets like stocks, LOC's or cash.

 

I'm talking about the opposite. I'm not talking about including other assets, I'm talking about ONLY including those other assets (the highly liquid ones).

 

I think your tangling risk mitigation measures with LVR calculations imo. I would use cash, buffers ,stocks, LOC for risk mitigation purposes and leave LVR out of it. Yes, a lower LVR does reduce risk, but I wouldn't mix the two personally when calculating a lvr. But as you said, many ways ppl slice a pie.

 

Yes you could be right. The reason why I do this I guess is because I calculate my actual LVR and it paints a much better picture than I would have expected. Perhaps I should take a win as a win.

 

Yeah I understand where your coming from. The only thing to me is, lets say you have a 3mil portfolio with an LVR of 50%, and say total liquid assets of $50,000. That would leave you with an LVR of 98.4%, although in reality you have around 1.5m dollars net worth on a 3 mil portfolio...

To me it just skews the actual risk reality too much...that's my main concern.

 

Leo - your numbers are confusing me.
An LVR of 50% on 3 million is akin to 1.5 net worth.
Adding another 50k to this makes a 1.55 net worth.
Where does 98% come from?? It would be closer to 50%, or high 40% if you wanted to pile in your liquid assets.

 

Because it assumes you've maxed out your borrowing and that 1.5m isn't easily accessible. So if crap hit the fan you'd need to survive on 50k. This is what this discussion is about.

 

Gotta read the whole thread mate - then you'll get it, although I doubt you'll like it.

 

Yes that's true, it's a very glass half empty perspective.

 

See what you've done @jaybean!!